TY - JOUR

T1 - Efficiency of rational learning with private information

AU - Heinemann, Maik

PY - 2004/2/1

Y1 - 2004/2/1

N2 - The paper examines the welfare properties of rational learning by privately informed risk-neutral firms. It is shown that the market solution is inefficient, with firms putting too much weight on their private information and public information therefore accumulating suboptimally slowly. It might even be the case that more private information is harmful to welfare a result that it is impossible if private information is used efficiently. Moreover, it is shown that distortionary taxation of the firms' revenues might help to overcome the underlying information externality problem. All in all, therefore, the results qualify other results obtained in the literature.

AB - The paper examines the welfare properties of rational learning by privately informed risk-neutral firms. It is shown that the market solution is inefficient, with firms putting too much weight on their private information and public information therefore accumulating suboptimally slowly. It might even be the case that more private information is harmful to welfare a result that it is impossible if private information is used efficiently. Moreover, it is shown that distortionary taxation of the firms' revenues might help to overcome the underlying information externality problem. All in all, therefore, the results qualify other results obtained in the literature.

KW - Economics

UR - http://www.scopus.com/inward/record.url?scp=1642528434&partnerID=8YFLogxK

UR - https://www.mendeley.com/catalogue/bcf12845-6d97-3ecb-bc80-de5d7f95e45e/

U2 - 10.1111/j.0013-0427.2004.00360.x

DO - 10.1111/j.0013-0427.2004.00360.x

M3 - Journal articles

VL - 71

SP - 125

EP - 139

JO - Economica

JF - Economica

SN - 0013-0427

IS - 281

ER -